LAHORE - Chairman Federal Board of Revenue (FBR) Shabbar Zaidi has said that main theme of the federal budget 2019-20 was development of industrial sector and to generate employment opportunities. He was speaking at the Lahore Chamber of Commerce & Industry. Minister of State for Revenue Hammad Azher, Provincial Minister for Industries Mian Aslam Iqbal, LCCI acting president Faheem-ur-Rehman Sehgal, former presidents Bashir A Baksh, Mian Muhammad Ashraf, Iftikhar Ali Malik, Mian Anjum Nisar, Sheikh Muhammad Asif, Muhammad Ali Mian, Sohail Lashari, former senior vice president Amjad Ali Jawa, former vice president Kashif Anwar and Executive Committee members also spoke on the occasion.
Chairman FBR said that keeping in view the problems of business community regarding customs duty, valuation and clearance, ratio of Green Channel would be taken to 60%. He said that Sales Tax Registration process has been automated while certification for imports would also be automated soon. “Automation in FBR was the need of the hour and the government wanted less human inference in the tax system by utilizing modern technology to strengthen its transparency and accountability system”, Shabbar Zaidi added.
He said that suggestions of fixed tax on the shops at under 240 sq. ft. area and tax on the basis of electricity bill from shops 240 to 1000 sq. ft are under consideration.
He said that bonds have already been issued to resolve the issue of refunds. He said that business community would be consulted on zero-rating if new system of refunds doesn’t work.
To a question, he said that FBR is ready to consider new legislation for Small & Medium Steel Melters. While answering another question, Chairman FBR said that condition of CNIC of the buyer is not applicable yet.
Faheem-ur-Rehman Saigal said that certain measures taken in the federal budget 2019-20 would prove to be counterproductive for the industrial sector which contributes around 70% to tax revenues and the economy as whole. The overall increase in taxes, particularly the import duties would enhance smuggling and also increase the share of black economy. He said that government should resolve these anomalies in consultation with stakeholders so that the country can get of this economic crunch. He said that although the decision of exemption of custom duties on more than 1600 industrial inputs would help in making the local industry more competitive, however the increase in Additional Custom Duties (ACD) on 3000 items would impact vital industrial inputs and increase the cost of doing business. He recommended that this ACD should be taken back.
He said that the disallowance of input tax relating to supplies made to an unregistered person without disclosing his CNIC has its own complications. This can result in a potential misuse of CNICs which has resulted in fraudulent transactions of billions of rupees as reported in media from time to time. LCCI demands that condition of disclosing CNIC for sale to unregistered person should be delayed for one year.
“The proposal that retail shops having an area in excess of 1000 square feet would be included in Tier-1 where it would be mandatory to integrate their point of sales (POSs) with FBR’s computerized system so that sales are reported in real time, needs to be reviewed holistically owing to a few reasons”, he said and added that firstly, the constructed area is not an indicator of business volume as many shops in the far flung areas have extremely low business volumes as compared to shops with similar areas in the commercial hubs.
Secondly, he said, the enormous rental cost, overheads and low volume of business these days make it difficult for shops to put up a costly system in place to integrate their point of sales with FBR. He demanded that the condition of linking point of sales with FBR should be based on electricity bills rather than the constructed area.
“The abolishing of Final Tax Regime in favour of Minimum Tax Regime can result in an unjustifiable hike in tax liabilities of commercial importers, commercial suppliers of goods, and contractors as they operate on very low profit margins where their tax on actual profit is often less than the minimum tax. It can adversely impact our imports of vital raw materials and can hence hamper the performance of industrial sector. LCCI demands that government should either restore the Final Tax Regime or cap the Minimum Tax Regime at 2%”, he added.
He said that the suppliers who deal with unregistered dealers are required to pay tax on 10% profit margin while in reality; their profit margins in these times of economic crunch are around 2-3%. The government should remove this anomaly on urgent basis.
He said that the withdrawal of Zero Rating facility has created a fear among the exporters that their refunds would start getting stuck from 1st July as the government has not put up an efficient system of refund payments in place. This would result in squeezing of working capital and make it difficult for businesses to even pay their salaries. LCCI would request the government to immediately pay the refunds up to Rs.50,000 as per the instructions of Finance Minister.
The decision of the withdrawal of Zero Rating facility should be put in abeyance till a proper system of refunds is made, tested and implemented. One mechanism proposed by exporters is that 70% of the refunds should be paid to regular exporters upon issuance of Bill of Lading and the remaining can be paid upon realization of export proceeds. The government can then do a post-audit. The decision to pay refunds only on the basis of export proceeds is not viable as the remittances often come after a considerable lag.
He said that a lot of changes have been made in the Taxation regime for retailers without taking them into confidence. Before the Budget 2019-20, the Tier-I retailers had the option of paying 2% tax on their turnover. Now the standard rate of 17% will be charged to retailers which will have the adverse impact of shrinking the tax base owing to cumbersome procedures of maintaining sales tax records. Furthermore they will not be allowed to claim input tax on their already purchased stocks. LCCI Acting President suggested that the rate of Sales Tax be reduced to 10% and the retailers should be allowed to claim input sales tax on their previous 6-month stock.